On May 14, 2015, the Trade Facilitation and Enforcement Act, introduced by Senator Orrin Hatch, passed the Senate by a vote of 78-20. If signed into law, this bill would add new IRC § 7435 providing for the revocation of passports in cases of delinquent tax debts amounting to more than $50,000, which will be adjusted for inflation beginning in 2016. This change is another tax provision that would disproportionately impact citizens residing outside of the U.S. for the following reasons:
- Given the harsh civil penalties applicable for the failure to file the complex panoply of required international forms, citizens residing abroad can quite easily and unwittingly rack up $50,000 in penalties, even if the citizen has reported all income and paid all required federal tax.
- Citizens residing abroad with tax debts are more likely to be unaware that they even have an outstanding tax debt, since federal tax liens may generally be issued without judicial oversight.
- Citizens residing abroad are obviously much more reliant on their passports than U.S. resident citizens. Passport revocation would potentially leave U.S. citizens attempting to travel vulnerable to arrest and detention by a foreign government.
Senator Orin Hatch and other Senators and Representatives that support Residence Based Taxation (“RBT”) also support this passport revocation provision. We believe that support of RBT and support of the passport revocation provision are inconsistent, due to the disproportionate impact of passport revocation on U.S. citizens residing abroad as described above.
U.S. Citizens residing overseas may need to consult an international tax attorney to ensure they are not unwittingly accruing penalties or in a position to have their passport revoked. Please contact us to speak with Robert Ladislaw or William Blum regarding any inquiries.